Mumbai: The Reserve Bank of India (RBI) is ahead of the curve, Jim Walker, managing director of Hong Kong-based economic research house Asianomics Ltd, said in an interview while praising the central bank’s recent move to raise the cash reserve ratio (CRR, or the portion of deposits that banks are required to keep with RBI) by 0.75%. Walker also said he expected interest rates would go up and warned against annual economic growth of 8-9% that could lead to overheating. Edited excerpts:

How do you view RBI’s tightening of the monetary policy? What do you think lies ahead for India?

Tracking growth: Asianomics managing director Jim Walker.

RBI is ahead of the curve... The CRR move was a pretty aggressive signal to the banks. The credit conditions have not been that strong in India over the course of last year.

There is still a dearth of corporate credit pick-up. So you don’t want to be moving too aggressively ahead of that.

It’s already an early move and I am pretty sure that interest rates are going to move higher over the course of this year.... I think it’s probably going to be between 50 and 75 basis points. (One basis point is one hundredth of a percentage point).

Will it be a much harder run rate for China?

Yes, unfortunately the tightening process is very much behind the curve.

You can see elements of panic about just how much has gone into the property market.

When property prices start going up, expectations further run up.

This reduces profit margins and tends to be one of the least productive sectors of the economy.

This is why the government is running scared in China. It has reached an inflation of its own making, which is now going to pay the penalty and will have to crackdown on property.

This means cracking down on everything because you just cannot single out one sector. Economic growth in China will be less than that of last year. It may be at the 5% mark.

What are your expectations from the Indian Budget?

I usually don’t have high expectations from governments. I don’t think they will do very much at all on the Budget. We will be disappointed on how aggressively they move to contain the deficit.

At the moment, I don’t think it really matters too much because there is not a huge uptick of corporate credit. So it’s not a question of really crowding out the private sector just now, but I would like to see more in the way of government initiatives to streamline a tax system, reduce the subsidy programme and reduce some of the elements in the budget that I think are distorting the economy.

Can India’s GDP growth continue to be northwards of 8%?

From our perspective, (it will be) 5-7% growth in India, probably at a high end of that for the next couple of years. This is going to be fantastic growth relative to the rest of the world.

I get a bit worried when people start talking about 8-9%, because that is when overheating begins and the tightening process of the central bank will really get underway.

So 7% for me would be not too hot, not too cold, and would be a tremendous achievement for the Indian economy.

The kind of growth that India is generating just now... is more labour intensive than many other countries around the world and particularly relative to China.

So 7% growth is perfectly fine to absorb the labour coming into the economy.

I prefer that kind of growth to high (growth), which then frightens away foreign investors and frightens away foreign money.